To:            Vice Chancellors

From:        Edward Renfrow
                  State Controller

                  Don Waugh
                  Assistant State Controller

Subject:    Accounting for Securities Lending Transactions and the Fair Value of Investments

The Office of the State Controller (OSC) is planning for the implementation of GASB Statement Number 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, which is effective for our fiscal year ending June 30, 1998. In addition, the accounting entries for GASB Statement Number 28, Accounting and Financial Reporting for Securities Lending Transactions, will need to be recorded in the university’s accounting system and interfaced to the North Carolina Accounting System (NCAS), which is a change from last year. We have held discussions with the Office of the State Auditor and the Department of State Treasurer to discuss the implementation of both statements.

GASB Statement No. 28

The Office of the State Treasurer will provide the OSC with statewide STIF participant balances and securities lending transaction balances as of June 30, 1998. The OSC will compile this information and provide securities lending summary balances to the universities by August 7, l998. This information must be allocated and recorded in the university’s accounting system and interfaced to the NCAS. The NCAS accounts and CAFR report placements are listed below.
 
 

The allocation of the securities lending balances to the balance sheet accounts should be based on the STIF balances at June 30, 1998. The allocation of the securities lending income and fees should be based on the STIF interest credited to each fund during the year.

GASB Statement No. 31

The GASB made a major change in the accounting for investments by issuing GASB Statement No. 31 in March 1997. This new standard requires governmental entities to report most investments at fair value on the balance sheet. This statement is effective for the fiscal year ending June 30, 1998 and applies to universities with investments outside the State Treasurer. An overview of GASB Statement No. 31 is available on the Internet (http://www.osc.state.nc.us/OSC) in the North Carolina Accounting System Information Guide (SIG) under "News Bulletins". We added a new section entitled "Accounting Standards Update", which has PowerPoint slide shows of recently issued GASB pronouncements. Currently, slide shows for GASB Statements 31 and 32 are available.

The first step in implementing GASB Statement No. 31 is the calculation of the fair value of investments at the beginning of the year. This information will be used to record a prior period adjustment for the difference between the cost and fair value of investments on July 1, 1997. In addition, universities will need to record the investment activity for months one through twelve for purchases and sales. Universities should account for investments at cost during the year, recognizing realized gains and losses for the differences between the sales price and original cost. The transaction accounting should be the same as in prior years. At the end of the year, universities should make the necessary accounting entries to adjust their investments from cost to fair value and should record the changes in the fair value of investments in a separate allowance account. Universities should make the prior period adjustment and the adjusting entries during the thirteenth period. However, universities can compile the information for the prior period adjustment currently since this information is already available. This information should be recorded in the universities accounting system and interfaced to the NCAS. We have included illustrative journal entries for GASB Statement No. 31 for the first year of implementation and for the subsequent year (see Attachment A). The NCAS accounts and CAFR report placement needed for fair value reporting are listed below.
 
 

If you have any questions or comments about these issues, please contact Pam White at (919) 981-5473 (pwhite@controller.osc.state.nc.us), Clayton Murphy at (919) 981-5474 (cmurphy@controller.osc.state.nc.us) or Carmen Dixon at (919) 981-5475 (cdixon@controller.osc.state.nc.us). Your assistance and cooperation is most appreciated.

ER/WCM

Attachment